CIT Vs. Suzlon Energy Ltd. (Gujarat High Court), Tax Appeal No. 223 Of 2013, Date- 03.04.2013
Issue- Whether the Appellate Tribunal is right in law and on facts in deleting disallowance u/s. 14A of the I.T Act in respect of interest expenses incurred for investments in subsidiaries and administrative expenses such as staff salary of corporate office, audit fees, building rent and communication expenses ?
Above pertains to disallowances made by the Assessing Officer under Section 14A of the Act in respect of interest expenses incurred for investments made in subsidiaries and administrative expenses. CIT [A] deleted such disallowances, upon which, Revenue approached the Tribunal. The Tribunal rejected Revenue’s appeal, making following observations :‑
“3.5 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. Regarding the grounds raised by the revenue in respect of disallowance of interest expenditure made by the A.O under Section 14A and deletion made by learned CIT (A), we find that no interference is called for in the order of learned CIT (A). We hold so because we find that with regard to the investment of Rs. 5907.18 lacs in foreign subsidiaries, no disallowance can be made u/s. 14A because dividend income from foreign subsidiaries is taxable in India. Regarding balance investment of Rs. 38 crores approximately in Indian subsidiaries, we find that interest free own funds of the assessee is many time more than this investment because interest free funds available with the assessee as on 31.03.2005 as per the balance sheet as on that date is of Rs. 929.57 Crores. There is no finding given by the A.O regarding any direct nexus between interest bearing borrowed funds and investment in Indian subsidiaries. Hence, in our considered opinion, no disallowance u/s. 14A can be made out of interest expenditure in the facts of the present case. Accordingly, ground no. 2 & 3 of the Revenue’s appeal are rejected.”
From the above portion, we noticed that the Tribunal has bifurcated the expenditure in two parts – first related to investment of Rs. 5907.18 lakhs in foreign subsidiaries, it was held that the dividend income from such subsidiaries is taxable in India and that therefore, Section 14A would have no applicability. The remaining amount pertain to investment of Rs. 38 Crores [rounded off] made in Indian subsidiaries. In this respect, the Tribunal noted that the assessee had to its disposal, own interest free funds many times over the investment in question. As per the balance sheet as on 31st March 2005, the assessee had interest free fund of Rs. 929.57 Crores.
Such being the facts, the Tribunal, in our opinion, committed no error. No question of law, therefore, arises.